--Investment manager sees water-related industries growing 6% to
7% a year
--Countries like India and China currently consume one-third of
water per person compared with the U.S., but gap is narrowing
--Risk of investing in water is uncertainty in supply
By Amy Or
NEW YORK--A rapidly growing global population, the rise of the
middle class in developing countries and aging infrastructure in
the developed world are placing unprecedented strain on the world's
water supply--and have created a multi-year, if not decade-long,
investment thesis.
Simon Gotelier, an investment manager at London-based Impax
Asset Management Group PLC (IPX.LN) said the world needs $450
billion to $500 billion of water-related investments on an annual
basis across a wide range of industries: from the transport of
water to the building of pipes and sewage-treatment plants.
He expects water-related industries will grow at 6% to 7% a
year, an attractive rate of growth when the International Monetary
Fund is predicting global economies will expand at a lackluster
rate of 3.6% next year.
Investments in renewable energy like solar as alternative
sources of power were all the rage about a decade ago. But
frothiness in equities markets leading up to the financial crisis
and subsequent austerity measures implemented as nations grappled
to stabilize their economies meant subsidies to the sector have
been scaled back.
Impax, which managed firmwide assets of $3 billion as of Sept.
30, switched to the broader investment thesis of improved energy
efficiency right before the housing bubble burst.
It has a total of GBP224 million ($359 million) of investments
in pollution control, water infrastructure and related
technologies, including an EUR83 million ($108 million)
France-domiciled mutual fund called BNP Paribas Aqua I, where Impax
acts as an underlying manager. BNP Paribas Aqua I has risen more
than 80% since its inception in December 2008, while the MSCI World
Index, which is designed to measure the equity-market performance
of developed markets, increased by about 17.32% during the same
period. This year through Oct. 4, the fund was up 17.7%, beating
the index's 8.9% return.
The fund counts U.S.-based companies like diversified
manufacturer Danaher Corp. (DHR), industrial pumps and
engineering-equipment manufacturer IDEX Corp. (IEX) and Watts Water
Technologies Inc. (WTS), which makes products to control the
efficiency, safety and quality of water, among its largest
holdings.
"There has been two years of under-investment in the U.S., with
240,000 main breaks needing mending," Mr. Gotelier said. "There is
huge pent-up demand for renovation for the water and waste
system."
Mutual-fund research house FE Ltd. (FEL.AU) gave the BNP Paribas
Aqua I fund its maximum score of five crowns--an equivalent to the
five stars Morningstar Inc. (MORN) gives to top-performing mutual
funds in the U.S.
While FE is prohibited by its U.K. license to give retail
investors fund recommendations, its Investment Product Consultant
Oliver Clarke-Williams said water, unlike other commodities, has no
substitutes and that its scarcity is accentuated by the exponential
increase in the demand for water in developing countries.
The risk, however, of investing in water is the element of
uncertainty in supply. Several recent water-related disasters
highlight the importance of clean water supply, and in the U.S.,
scorching heat in June and July sparked the worst drought since
1956.
"Weather patterns will have a huge impact on [supply] and
therefore the price," Clarke-Williams said.
But for now, demand is growing fast. Countries like India and
China are currently consuming just a third of the water per person
compared with the U.S., and the gap is narrowing as their living
standards improve.
A kilogram of beef, for example, takes 15,400 liters to
produce--more than nine times the water needed to grow the same
amount of paddy rice, Clarke-Williams said.
"It's not just a change to a more meat-based diet,"
Clarke-Williams said. "Increases in demand for alcohol, sugar and
clothing will all lead to a dramatic increase in water
consumption."
To make matters worse, water availability has been limited. Case
in point: China, which accounts for 20% of the world's population,
has access to only 7% of the world's water supply. Under a
five-year economic plan outlined in 2010, China earmarked $450
billion to waste-water management and water-quality monitoring, a
sum that will benefit water and sewage-related industries.
(Amy Or covers hedge funds for Dow Jones Newswires. She can be
reached via email at amy.or@dowjones.com.)
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